Odd Advisors Are Best

Most people wouldn’t want a loon managing their money. 

But perhaps they should reconsider.  Low cost fee-based advisors—especially those building indexed portfolios—aren’t exactly normal.

To determine how strange they truly are, let’s examine what’s typical.  When I first met my wife, Pele, she invested with an adviser through Raymond James Financial.  He was normal to a fault.

For Pele to make money, her mutual funds would have needed to earn 6.25 percent per year, before fees.  She owned a portfolio of actively managed mutual funds with expenses averaging 1.5 percent.  Her advisor charged her a portfolio wrap fee, costing an additional 1.75 percent.  That’s a total of 3.25 percent, really high for the U.S. but fairly typical for investors in other countries. Add the increasing cost of living (let’s assume 3%) and her fund managers would have needed to generate 6.25 percent just to keep pace with inflation. 

Please read my AssetBuilder article here.

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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5 Responses

  1. Bob Cairns says:

    Just read your book – loved it – finally it pushed me into action. Question my sister (Cdn school teacher) just lost her husband and received 500k insurance. Should I tell her to invest it per couch potato portfolio at once or staged over time to avg the mkt?

    • Hi Bob,

      I'm sorry to hear about your sister's husband.

      What she could do with the money is entirely dependent on her psychology. If it were me, I would invest it all at once. But someone who watches the markets and freaks when investments drop may be more comfortable allocating $50,000 per month over the next 10 months. It's very much a psychological decision. In roughly 2 out of every 3 years, the markets rise. So….statistically speaking, although there's no guarantee, investing it all at once will give a higher potential boost. Whatever you do, don't look to market predictions. Most will be wrong.

      If it were my sister, I would try to convince her to invest it all and be done with it. But…that depends on her mindset.

      I hope she's doing as well as can be expected, emotionally, under the circumstances. I'm glad that you're looking after her.


    • Aram Durphy says:

      Hello Bob,

      That's excellent advice from Andrew. For what it's worth, I'm a fee-only investment manager with a good track record of success, and I prefer to invest large sums in thirds. Each third is usually spread out over a month or so. I use this method because it helps average out some short term volatility, and helps my clients relax a little when there are big short term swings right after we start.

      My sympathy to you and your sister.


  2. Toby says:

    Zurich's Oxygen Bandits

    It upsets me that companies like Zurich, Friends Provident and Raymond James take advantage of people like this. I invested with Zurich and cancelled my policy recently with a loss of $10,000 The financial advisors selling these products are like oxygen bandits stealing the air I breathe. Their net effect on my world is negative.

    Like you Andrew, I am a teacher. I go to work and have the privilege of helping people every day. I love my job. I know that I am not an oxygen bandit for my students. The net effect I have on them is positive. I help to enrich their lives.

    I now have a simple portfolio consisting of three low cost Vanguard index funds. The fees I pay through the funds and from my brokerage are ridiculously low when compared to the fees extracted from my previous account with the oxygen bandits listed above. I am not locked into any payment plan. I can add money whenever I want. I can remove money whenever needed. With the low fees and contribution and withdrawal flexibility, I know that oxygen is being added to my investment and hence, personal world. Your website helped me create this low cost portfolio. Thank you for the oxygen Andrew. It is not complicated when taught by an honest and talented teacher like you.

    • Thanks so much for sharing this Toby. And man….you described the oxygen bandits beautifully. I'm also really happy knowing that you are going to prevent others from falling into this trap.



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